Sell-Off Takes a Breather | Woolworths Update

4 October 2021

Global markets were mixed overnight, with the US market (S&P 500 index +0.2%) up slightly as calmness returned back to the market after Tuesday saw the worse sell off since May.

Treasury Yields stabilised following the recent rally, but that did not stop tech shares from trading lower, causing the tech heavy Nasdaq to lag, down another -0.2%. Defensive stocks performed well, as the utilities and consumer staples sectors outperformed. 

Washington tensions continue after Senate Republicans yesterday blocked a bid by Democrats to suspend the debt ceiling, and a conservative Democrat dashed hopes for the US$1 trillion infrastructure plan because of ongoing disagreements.

European Markets  (Stoxx 600 index +0.7%) were up overnight, partially recovering from their previous session sell off, with most sectors in the green led by financial, healthcare and consumer sectors.

Closer to home, there were 45 new covid cases, dashing hope for a reduction in restrictions, and we also saw weakness in the NZ dollar overnight. In Australia, unrest/protesting continues in Melbourne, and : Victorians case numbers have surge to 1438 this morning (a record daily case number), with five deaths. 

Woolworths (WOW:ASX)

Woolworth shares have been weaker over the month so far, following its strong rally after the demerger and release of a solid result for the 2021 financial year. The group delivered  a net profit after tax of $1,972m, which was up +23% form last year and as the same time announced a $2billion share buyback to return capital back to shareholders following the Endeavour demerger.

The new WOW is transforming into a more defensive retail business focusing on its core over the medium-term, which is set to grow by expanding its market share in the grocery market and utilizing their digital/delivery offering. We believe due the nature of their products, WOW should be able to pass on cost inflation onto consumers. 

We remain comfortable with our BUY rating at current levels. WOW shares should benefit from positive valuation re-rating, gaining a premium due to the lower-risk offering after offloading the drinks and hotel business.

Australia & New Zealand Market Movers

The Australian market was down heavily again on Wednesday (ASX 200 index -1.1%) to a four-month low.

Taking a weak led from Wall Street, the ASX saw its Tech and healthcare sector hit hard again. A decline in iron ore driven by combination of power outages in China and lingering concerns over Evergrande didn’t bode well for the major miners as well.

Consumer staples helped offset some of the decline, and despite the price of gold slipping, gold miners ended the day stronger.

The New Zealand market was down again yesterday (NZX 50 index -0.4%) for a fourth consecutive session following a sharp sell-off globally sparkled largely due to rising global bond yields.

Most of the market was trading lower, led by Air NZ which fell -3%. The Warehouse jumped +1.7% after reporting a strong result for the financial year, with profits doubling from the previous year on a +8% lift in sales.

Rakon shares surged more than 15% after it upgraded its earnings guidance GreenCross Health care was up +2.6% after announcing its was working with Pacific Equity Partners to make a bid for Tamaki Health.

3 Things Markets will be Watching this Week

  1. After an eventful week for China last week, there is likely to be more focus on the latest Chinese PMI (manufacturing) data this week
  2. ​Locally, latest ANZ Business and Consumer Confidence data in NZ will be released
  3. Locally, financial results from Synlait Milk and NZ King Slamon, and AGM’S held by the ASX, Vector and Steel & Tube.
Global markets were mixed overnight, with the US market (S&P 500 index +0.2%) up slightly as calmness returned back to the market after Tuesday saw the worse sell off since May.

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